At present, there are about 800,000 workers in the State who have no occupational or private pension, meaning they will be solely reliant on the State Pension when they retire.
However, the Automatic Enrolment Retirement Savings System Bill 2024, whose publication was announced on Friday and which will shortly be brought to the Oireachtas, will pave the way for these workers to be brought into a pension scheme for the first time.
Under Automatic Enrolment, all employees will have access to a workplace pension savings scheme which is co-funded by their employer and the State. Upon being enacted, employees aged between 23 and 60 years old, who earn over €20,000 per year, and who are not already paying into a pension scheme, will be automatically enrolled.
In a similar way to the old SSIA system, contributions made by the employee will be matched by the employer and topped up by the State. In practice, for every €3 put in by the employee, the employer will also contribute €3, and the State will contribute €1. That means for every €3 an employee puts in, they will receive a pot of €7.
Contribution rates will be phased in gradually over a period of 10 years, allowing time for employers to budget and plan and for employees to adjust to the new system.
Starting in 2025, employees will contribute 1.5% of their gross earnings, which will be matched by their employer, and topped-up by the State.
These rates will gradually increase every three years until reaching a maximum contribution rate of 6% per employee, 6% per employer, plus 2% from the State from 2034 onwards.
The goal of Automatic Enrolment is to increase pension coverage and pension adequacy in Ireland, being the only country in the OECD that does not yet operate this or a similar system as a means of promoting pension savings.
A key feature of such systems is they operate on an ‘opt-out’ rather than an ‘opt-in’ basis. Participants will be allowed to opt-out or suspend their contributions after a mandatory six-month participation period. They will be brought back into the system again after two years unless they have an alternative pension arrangement.
In announcing the publication of the Bill on Friday, Minister for Social Protection, Heather Humphreys said: “this represents one of the biggest reforms of the pension system in the history of the State, and is an important milestone in supporting people in their retirement years.”
It is estimated that a worker on the national average wage contributing consistently for 40 years could build up a savings pot of nearly €750,000, including investment returns, over the course of their working life.
A new public body, the National Automatic Enrolment Retirement Savings Authority, will be established to administer the system. For further information, visit www.gov.ie/autoenrolment
